Weekly Reports | Nov 18 2024
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
Guide:
The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Summary
Period: Monday November 11 to Friday November 15, 2024
Total Upgrades: 9
Total Downgrades: 12
Net Ratings Breakdown: Buy 58.90%; Hold 32.89%; Sell 8.21%
For the week ending Friday November 15, 2024, FNArena recorded nine upgrades and twelve downgrades for ASX-listed companies by brokers monitored daily.
Reversing the recent trend, rises in average earnings forecasts and average target prices convincingly outweighed falls, as can be seen in the tables below.
Paladin Energy featured atop the tables for negative change to earnings and target prices after management reduced FY25 production guidance to 3.0-3.6mlbs from 4.0-4.5mlbs and withdrew all other guidance.
Management cited ongoing issues with stockpile processing and greater ore grade variability during the ramp-up of Langer Heinrich, along with disruptions to water supply from the Namibia Water Corporation.
The stock price declined by around -29% post the market update.
The analysts at Morgan Stanley felt the negative share price reaction was overdone, especially as management highlighted the short-term nature of the setback, with nameplate capacity of 6mlbpa expected by the end of 2025.
Shaw and Partners felt the update should not have been a surprise as management had already flagged the issues at the company's first quarter update.
Neither of these two brokers made large adjustments (Morgan Stanley no change) to existing targets, but Citi applied a 90% risk rating to its Langer Heinrich valuation to reflect ramp-up uncertainty, and this broker's target was reduced to $11.50 from $14.60.
Bell Potter lowered its target to $9.70 from $14.40 and suggested management has a significant reputational rebuild ahead.
This broker also noted Paladin would be in a tough position to progress viable growth projects should the current Fission Uranium acquisition deal not complete.
To return the transaction to a premium for Fission shareholders, the Paladin share price will need to climb above $10, noted the analysts. Shares closed the week at $7.29.
The average broker earnings forecast for Liontown Resources rose significantly last week after management provided initial FY25 production and cost guidance as part of a revised mine plan for the Kathleen Valley lithium mine in Western Australia.
The analyst at Macquarie noted management's forecast sustaining and growth costs were higher-than-expected due to increased underground mining and infrastructure costs as Kathleen Valley transitions to underground mining from open-pit.
Improving processing grades, explained the broker, the updated mine plan is for 2.8mt per annum production by the end of FY27, down from 3mt per annum.
Unfortunately, higher-than-expected capex pulls forward Citi's balance sheet concerns. On the analyst's spot estimates, additional liquidity will be needed by FY26.
This broker decided to reduce its 12-month target price to 75c from 85c and downgraded to Sell from Neutral on valuation, noting Liontown stock had outperformed peers by 10-20% in the quarter-to-date.
Silk Logistics received two ratings downgrades from separate broker last week.
Morgans increased its target to $2.14 from $2.00 to align with the offer price in the Scheme Implementation Agreement with DP World (Australia).
Silk's Board unanimously recommended Silk shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to an independent expert concluding the Scheme is in the best interests of Silk shareholders.
Major shareholders controlling around 46% of shares on issue have already confirmed their intention to vote in favour of the scheme, noted Morgans, which downgraded to Hold from Add after raising its target to $2.14 from $2.00.
As covered in https://fnarena.com/index.php/reporting_season/ ANZ Bank also received two ratings downgrades last week after FY24 results missed consensus forecasts.
Last week, analysts raised their targets materially for Life360, Aristocrat Leisure and Xero after releasing third quarter, FY24 and first half results, respectively,
Average earnings forecasts for Life360 and Aristrocrat rose by around 15% and 12%, respectively, but were preceded on the positive earnings change table by two agricultural stocks Nufarm and GrainCorp, as well as Orica.
On the flipside, Light & Wonder is listed second in the table below behind Paladin Energy on the negative change to earnings table after releasing third quarter results.
For explanations of these changes to earnings forecasts and targets relating to the recent mini reporting season please refer to the abovementioned link.
Total Buy ratings in the database comprise 58.90% of the total, versus 32.89% on Neutral/Hold, while Sell ratings account for the remaining 8.21%.
Upgrade
APA GROUP ((APA)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/2/1
APA Group is upgraded to Buy from Accumulate by Ord Minnett with target price retained at $8.60 due to more constructive view as a result of dissipating regulatory risks.
The broker notes the Australian Energy Regulator's recent decision not to regulate APA's South-West Queensland pipeline has lessened re-regulation concerns.
Despite the end of APA's WallumbillaGladstone pipeline contract with Shell in 2035, Ord Minnett sees a decade of low-risk revenue.
Distribution yields are projected at over 8% from FY25 to FY30, supported by inflation-protected earnings.
The broker finds the prospective yield is very attractive for investors.
BRICKWORKS LIMITED ((BKW)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/3/0
Bell Potter upgrades Brickworks to Buy from Hold. The analyst believes the stock's pullback offers a bottom-of-the-cycle entry point with potential for a valuation "uplift" based on the broker's in-house view of an interest rate pivot.
The first rate cut in Australia is expected in February 2025.
Assessing the earnings mix for Brickworks, the analyst highlights the valuation ascribed to its building materials business, excluding Washington H. Soul Pattinson & Co ((SOL)), is 7x EV/EBITDA versus a bottom-of-the-cycle 6.0x.
The analyst estimates a cash rate cut of -50bps equates to an EPS accretion between 3%-4%, as most of the company's earnings are generated from investment dividends and lower-yielding property.
The broker posits an underappreciated aspect of the company's valuation is "rent reversion" and property development.
Buy. Target price rises to $32 from $31.
LIFESTYLE COMMUNITIES LIMITED ((LIC)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 2/2/0
Bell Potter upgrades Lifestyle Communities to Hold from Sell following the AGM trading update and the underperformance of the stock relative to the XPJ REIT index.
Management highlighted adverse media and challenging Victorian market conditions have resulted in only 25 net new home sales year-to-date to 31 December 2024. 1H25 guidance for settlements is 120-130 versus the broker's forecast of 125. No FY25 guidance was offered.
The VCAT hearing decision remains a headwind, along with a decision on the replacement CEO and deferred management fees.
Bell Potter lowers EPS estimates by -5% and -11% for FY25/FY26 due to expected lower settlements and concerning below-trend sales rates.
Target price lifts to $8.90 from $8.20. Hold rated.
LIGHT & WONDER INC ((LNW)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/0/0
Ord Minnett upgrades Light & Wonder to Buy from Accumulate with target price raised to $187 from $155.
The broker notes the company's September-quarter earnings were slightly below expectations due to weaker gaming division performance, but revenue from the Dragon Train game series has largely been replaced.
Ord Minnett anticipates 22% EPS growth in 2025, driven by strong operating leverage, continued growth in gaming installations, and double-digit expansion in iGaming.
Post-results, the broker lowers earnings forecast by -2% in 2024 but increases estimates for 2025/2026 by 9% and 8%, respectively.
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